Triplex. First time investor. Wanting opinions on first deal.

Multi-Family and Apartment Investing
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Triplex. First time investor. Wanting opinions on first deal.

Mason Anderson
Investor · Kokomo, IN · Member since 2019 · 4 posts · 2 votes

I am diving into the real estate field. Taking over my Gmas Triplex. I have looked at doing this many ways and think I have found the best option. Let me know if you agree or disagree... please. This is my first deal and would love all the help I can get. 

Triplex in a pretty decent area close to town. My Gma owns the property and owes nothing. Was hoping to take it over on contract. Have her give me the title for a small down payment. Then pay her $400-$450 monthly for 8 years and maybe 6 months depending on appraisal. Needs a ton of work, but I am hoping it appraises for as low as possible. Thinking $40,000. I have the money to do rehab, hopefully $10,000-$12,000. Also want to add SQFT by enclosing the porch and adding another bedroom to the front apartment (would this be worth the money it would take to do it?). Hopefully after all that the new appraisal comes back at around $68,000-$75,000. I have 3 pretty strong comps supporting that. Then looking to take 75% equity out and find another deal. Would rent the plex out and cashflow for around $600-900. My total investment would be the small down payment ($1,000-$2,500) and the rehab ($10,000-$12,000 with porch addition and bedroom $15,000). 

Any tips or opinions?

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Erik W.
Real Estate Investor · Springfield, MO · Member since 2017 · 1k+ posts · 2k+ votes
6y

It's nice that your Gma wants to be nice to you.  I encourage you to be the same, and more!

Think of this: your entire family is going to be watching this transaction like an episode of reality TV.  It will dominate conversations at holiday dinners.  Every motivation and action will be scrutinized 10x more than if this were an arm's length transaction with a non-family member.  Document, document, document!  Have HER attorney draft the papers.  Have HER heirs review the documents.  Everything done in writing.  No oral agreements.  No spit and handshake deals.  No arm twisting the appraiser to get you a below market sale price.  You should expect to pay market rate, nothing less.  Make sure it's all done above board and her interests (and yours) are fairly represented.  Lay out the plan for the rehab.  Talk about the work and estimated costs.  Discuss what you think it will be worth at fair market value once you're done.  Make sure everyone sees it, and for extra precaution I'd even ask them to sign off on it.  Abundant clarity and fair dealing are your goals.

I'm not saying this deal CAN'T be done or SHOULDN'T be done: I'm saying families + money = weirdness.  The last thing you want is to alienate half your family because they think you "tricked" sweet old Mee-maw out of her property.  People get ideas in their head all the time...

Distant 3rd Cousin-in-law: "Oh granny always said she wanted US to have the house; back in 1997 she said if we liked it we could move in when she died..." 

Of course no one else ever heard that conversation and it probably never happened, but that doesn't stop people from getting ideas in their minds, and ideas (even false ones) are hard to dislodge when they've been dreaming about them for decades and there's money at stake.

Be cautious.

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  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    6y

    @Mason Anderson you have given this a lot of thought and it looks very doable. Is the loan interest free? Run that by a tax accountant. It is hard to comment a lot without knowing rents..........I would hesitate at doing the bedroom; unless it by itself brings in 200 dollars per month-you will need a cushion for reserves and you may want that money for your next deal. When doing the rehab use some of your money on the property-not just the units themselves, paint, landscaping, steps, walkways and any exterior repairs and appearance adds a lot of value. Great way to enter the REI world! All the best!

    1Reply
  • Mason Anderson
    OP
    Investor · Kokomo, IN · Member since 2019 · 4 posts · 2 votes
    6y

    @Bjorn Ahlblad Thank you for taking your time to reply. 

    The loan is interest free only because it is my Gma and she is being nice to her grandson haha. To my calculations the bedroom would add $100-$200 in rent and would not take a ton of money to do in the first place because myself and my dad would tackle that ourselves to keep costs down.  

    Great advice on the exterior rehab! We were thinking of adding a privacy fence as well. Does that add to the value of the home? or is it just peace of mind for the tenants.. the neighbors are not very tidy. 

    Thank you! Feeling very blessed to have this as an in to REI!

    0Reply
  • Erik W.
    Real Estate Investor · Springfield, MO · Member since 2017 · 1k+ posts · 2k+ votes
    6y

    It's nice that your Gma wants to be nice to you.  I encourage you to be the same, and more!

    Think of this: your entire family is going to be watching this transaction like an episode of reality TV.  It will dominate conversations at holiday dinners.  Every motivation and action will be scrutinized 10x more than if this were an arm's length transaction with a non-family member.  Document, document, document!  Have HER attorney draft the papers.  Have HER heirs review the documents.  Everything done in writing.  No oral agreements.  No spit and handshake deals.  No arm twisting the appraiser to get you a below market sale price.  You should expect to pay market rate, nothing less.  Make sure it's all done above board and her interests (and yours) are fairly represented.  Lay out the plan for the rehab.  Talk about the work and estimated costs.  Discuss what you think it will be worth at fair market value once you're done.  Make sure everyone sees it, and for extra precaution I'd even ask them to sign off on it.  Abundant clarity and fair dealing are your goals.

    I'm not saying this deal CAN'T be done or SHOULDN'T be done: I'm saying families + money = weirdness.  The last thing you want is to alienate half your family because they think you "tricked" sweet old Mee-maw out of her property.  People get ideas in their head all the time...

    Distant 3rd Cousin-in-law: "Oh granny always said she wanted US to have the house; back in 1997 she said if we liked it we could move in when she died..." 

    Of course no one else ever heard that conversation and it probably never happened, but that doesn't stop people from getting ideas in their minds, and ideas (even false ones) are hard to dislodge when they've been dreaming about them for decades and there's money at stake.

    Be cautious.

    3Reply
  • Mason Anderson
    OP
    Investor · Kokomo, IN · Member since 2019 · 4 posts · 2 votes
    6y

    @Erik W. Thanks for taking your time to respond!

    I have actually taken that task head on. From the beginning I have documented everything and I can definitely confirm your statement because money + family does = weirdness. The whole process has been a little sensitive only because I am trying to be fair but also make money/not lose money. I was the one who said we should get an appraisal to make sure the purchase price is completely fair and no one feels like they're being taken advantage of. My gma is doing a crazy cool favor for me, but in the same sense so am I for her. The property is a mess and she is ready to be done. It is funny because my Gma and my parents think I am some crazy, anal person for wanting everything in writing and signing on all agreements. I knew they would think that is odd but I have heard too many crazy family stories involving real estate and I do not plan on being one of those stories. 

    Hoping this ends well for the both of us and instead of that side of the family thinking I am some menace, hopefully they find me as the grandson who knows what he is doing haha! 

    I will definitely come back to this post when the whole process is over and write about my experience.

    Once again thank you for your input and tips!! Very helpful!

    0Reply
  • Marlen Weber
    Specialist · Plano, TX · Member since 2020 · 2k+ posts · 861 votes
    6y

    @Mason Anderson congratulations on diving into real estate and best of luck on your upcoming investments. 

    0Reply
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